Chuzz-
Thanks for the reply. I have enjoyed your posts on the TLAB thread and also here, though I don't always agree. But clearly stated disagreements are one of SI's best features. I never can understand why threads hound people who simply disagree with the thread's CW. Personally, I'd rather have people telling me why I'm wrong than agreeing with me, to keep my logic rigorous.
OK, on with the premise at hand, that Buffett is missing out on many opportunities in the tech sector:
This is a thread on Buffett investing. We all know that Buffett avoids tech stocks completely, but many of us feel we have an understanding of some portion of the tech world, so sometimes people want to discuss a tech stock in the context of other Buffett criteria. That's OK by me, I get a lot out of those discussions, though some Buffett purists probably gag at the thought of discussing tech on a Buffett thread. But to take it one step further, and try repeatedly to convince us Buffettistas that the Buffett approach is "unequipped to spot an emerging brand", is downright silly. We already know and accept that.
Buffettology isn't about spotting emerging brands. Whether Buffett is successful because of that or in spite of that is open to argument, but he is successful and we want to understand why. We're looking for fat pitches that Buffett would swing at, and we're not that interested in why non-Buffett pitches can also be successfully hit out of the park.
Of course, when you try to nail us Buffett-watchers down as to what the "Buffet criteria" are, you'll get widely ranging answers, though there will be some consistent themes. It is a lot easier to say which stocks are NOT Buffett stocks than it is to say which ones are (except, obviously, the ones WB already owns). But that doesn't make this thread a waste of time.
Buffettology is not a simple study, though some of the key tenets are straightforward. And in the end, I don't think any of us are trying to "be just like Warren". Each of us has our own style but wants to be able to incorporate some of Buffett's logic into our style. I think that's about the best we can hope to do. Buffett didn't try to be just like Graham or Fisher. He incorporated some of their methodologies into his own, and the combination was arguably the best in history. None of us will match Buffett's record, period. But we will be better investors from studying Buffett.
Now, let's get specific about some of the concepts and stocks you mentioned.
Gorillas: I have not read the book(s), but I think I understand the premise, which is that in the tech world it is best to invest in the dominant leaders in a given area, because it is hard to predict winners of market battles, and it is best to invest in those who have already won those battles because they are far better positioned to win the next battle. Or something like that. OK, it's a good concept, and this is where it ties to Buffettology. Gorillas often have some kind of toll bridge which makes it difficult for others to compete with them. Microsoft has been awesome in the toll bridge area, first with DOS, then with Windows, then with MS-Office, and now with NT. Cisco has long been king of the routers. Intel has quite a lock on x86 processors (yes, others sell x86 chips, but others besides KO sell cola).
So far, so good. All we have to do is identify the market leaders in the tech area and buy and hold forever. It has worked with MSFT, INTC, CSCO, and others. So it should be a piece of cake to identify the next MSFT, right?
AOL: A couple years ago, I had big doubts that AOL would survive. They were providing lousy service. Many savvy customers were singing up with independent ISP's and getting better service for less money. They were spending out the yazoo to acquire customers. In the end they pulled it off, but it was by no means a sure thing. I'm glad I passed on AOL. I'd do it again. One of my bedrock principles is that I want the companies I own to be profitable. I miss some opportunities because of this, but so what? (Note: MSFT, INTC, and CSCO were always profitable).
NETA: Network Associates is putting together a computer/network security powerhouse. Looks good, but I'm not at all certain that this field will exist independently five years from now. I own a small position (recently reduced) in CHKPF, a NETA competitor. From a Gorilla point of view, I should have bought NETA, which is unprofitable but growing and acquiring fast. But CHKPF has consistently been very profitable. Good enough for me, though CHKPF routinely makes lists of "lousy internet investments in 1998". So it comes down to one's faith in the gorilla theory, but what's that got to do with Buffettology?
RBUS: Rambus has what looks like a no-brainer lock on a new memory technology that everyone is going to adopt. So who cares what you have to pay, buy the stock, right? Well, didn't CIENA have an "unbeatable lead" on a new fiber optic technology a year ago? Oops. I don't know if Rambus will be vulnerable a year from now, but if there's that much money in it, then some smart people are probably working on it from another angle.
TLAB: This is a great company we both own, but no gorilla (you didn't bring TLAB up; I did). They are in the same space as Lucent (and surely Cisco in the future). But it ain't a Buffett stock and it ain't a value stock, unless we're talking relative value to the other telecoms. I still like TLAB for other reasons.
Let's look at a no-brainer gorilla from the past:
Novell: I used NetWare and the new Netware286 back in 1986. Great company, no-brainer investment, right. Until... How do you tell a safe gorilla (Novell from 1985-1995) from a gorilla in the crosshairs of an elephant gun (Novell from 1996-97 due to Windows NT)? I think it requires some knowledge of the products and competitive landscape, which very few tech investors really have, except perhaps in simple cases like MSFT and INTC. (I have never owned Novell stock; not sure when their IPO was, it's not important).
OK, so I like the gorilla concept, but only when I can really understand a company's products, market, and, most importantly, their competitors. And that isn't easy.
If you can catch these emerging gorillas in their infancy, more power to you. I have done it in the past with MSFT and INTC, which have my kids college educations nearly paid for. But I don't have the confidence that I understand the shifting markets that AOL, Rambus, and NETA play in like I did Microsoft and Intel a few years back.
And at current prices, you'd better be nearly certain of the prospects for market success when you invest in some of these companies. There just isn't much "margin of safety". (there we go again). But if you think you can succeed despite the lack of a safety net, because your gorilla concept is so sound and the potential upside is so large, go for it. I'm simply not comfortable going there with the bulk of my holdings. And that's why I'm here with the fine folks at the Buffettology institute.
Sorry to be such a windbag, but this clash of cultures is worth addressing.
I wonder what's next: Will someone come by the Buffettology thread and tell us we should be momentum investors, that relative strength beat the socks off Buffett last year?
Good investing, Chuzz. BTW, what is the TTFN again?
Respectfully,
-Wright |
